Article published Tuesday, July 13, 2004, at Wall Street Journal.

Unequal Punishment

By John R. Lott Jr.

There won't be much suspense when Martha Stewart is sentenced this Friday. Judge Miriam Cedarbaum has little discretion in sentencing Ms. Stewart. The U.S. Sentencing Guidelines set the rules, and Ms. Stewart probably faces between 10 and 16 months in jail for her convictions on four counts. Such narrow ranges were set up to promote "fairness," and treat criminals who committed the same crime equally.

Even to those for whom the guilty verdict is reasonable, Ms. Stewart's case illustrates a criminal justice system badly out of whack. Ms. Stewart faces penalties that are so out of proportion to the crimes she committed, that one cannot help conclude that the system penalizes the well-to-do much more than poorer criminals who commit the same offenses.

Before the 1987 guideline, judges could sentence two criminals who'd committed the same crime to vastly different sentences: Ms. Stewart could have been let off with simple probation or given more than 10 years. But judges were rarely that arbitrary. In fact, denying judges discretion has made penalties less, not more, equal.

The reason is simple: the justice system imposes many types of penalties on criminals, but the sentencing guidelines only make sure that the prison sentences are equal. Beyond prison, criminals face financial penalities that largely depend on the criminal's wealth. In addition to fines and restitution, white-collar criminals face the loss of business or professional licenses and the ability to serve as an executive or director for a publicly traded company.

Ms. Stewart, for instance, will never again serve as president of Martha Stewart Living and she'll give up her $1.5 million annual salary. Her criminal fines could reach $250,000 while the restitution and penalties from civil actions (both from the Securities and Exchange Commission and shareholder suits) will be enormous. But that is still only a small part of the impact of her conviction, given her overwhelming importance to her company.

On the day Ms. Stewart was convicted the stock soared from $13.70 to $17 as reports speculated that some type of deal had been struck limiting her prison sentence, only to see the stock plunge to $10.50 by the end of the day after she had been convicted. Her conviction changed the company's value by over $320 million just between that day's high and low. As Ms. Stewart owns 63% of the company, she personally suffered a loss of $203 million on that day. The other shareholders bore the rest of this loss; but soon after the criminal case is concluded, they will file civil suits against Ms. Stewart, forcing her to cover their losses.

Compare the penalties Ms. Stewart faces to those of, say, a drug dealer convicted of the same crimes of giving false information to investigators. Both would face the same prison sentence. But without any discernable assets, the dealer would escape the other financial penalties Ms. Stewart faces. If the dealer had a public defender, he'd even avoid paying a lawyer.

How can these two vastly different penalties for lying to federal investigators be considered comparable? Surely defendants such as Ms. Stewart can hope to offset these much higher penalties with highly skilled lawyers, but this by no means levels the field. Ms. Stewart's total financial penalty could easily amount to over $300 million dollars, while the drug dealer faces a negligible additional penalty on top of imprisonment.

Prior to the sentencing guidelines, judges frequently took into account these different penalties and made adjustments to somewhat equalize the total penalty. But no longer.

It is hardly ever fashionable to defend the wealthy-let alone wealthy criminals. Yet the gap in punishment is so enormous it is impossible to ignore. If fairness means that two people who commit the same crime should expect the same penalty, the current system is not merely unfair, it is unconscionable.

John R. Lott Jr. is a resident scholar and was chief economist at the U.S. Sentencing Commission for 1988 and 1989.

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